1. FCFF FCFE FCFF from NI = NI + Dep n+ interest*(1-t) FC inv- WC inv FCFF from EBIT = EBIT*(1-t) + Dep n FC inv- WC inv FCFF from EBITDA = EBITDA * (1-t) + Dep n* t FC inv- WC inv FCFF from CFO = CFO+ interest * (1-t) - FC inv FCFE from FCFF = FCFF interest * (1-t) + Net Borrowing FCFE from NI = NI + Dep n FC invWC inv+ Net Borrowing FCFE from CFO = CFO FC inv+ Net Borrowing FCFE from target debt ratio = NI - (1 - DR)*(FC inv- Dep n )] - [(1-DR)*(WC inv )] Q.Compute FCFF given NI=30, dep n = 2, interest 10% of 500, tax rate 30% and CapEx + WC changes are 5.Ans. FCFF=30+2+50*0.75= 30.5 mnQ.Compute FCFE given NI = 30, depreciation = 2 , interest 10%of 500 , tax rate 30% and CapEx + WC changes are 5 ( in million Rs) , net borrowings = 3Ans. FCFF = 30 + 2 + 50*.7 5 = 30.5m (Rs) FCFE = 30.5 50*.7 3 = 24 m (Rs) Free Cash FlowValuation

• Use FCFF when:

Firm lacks stable dividend policy

Dividend policy not related to earnings

FCFF is related to profitability

Controlling share holders perspective